Fed up with project failures, management problems and possible city overcharges, Fort Lauderdale commissioners have ordered an extensive audit of the city’s Community Redevelopment Agencies.

In a little-noted action, commissioners directed the audit of three CRAs at a conference meeting earlier this year.

The audit was triggered by the million-dollar failure of the Sixth Street Plaza project. Some commissioners expressed additional concerns about the findings of a city auditor’s report on CRAs that they said indicate the city had unfairly overcharged the CRAs for services during the past five years.

Commissioners ordered “a full audit” of the Northwest/Progresso/Flagler Heights (NWP) Community Redevelopment Agency, the Central Beach (CB) CRA and the Central City (CC) CRA, City Auditor John Herbst said in an interview. He said the audit, now under way, may be completed in two months.

Herbst said the audit was undertaken because the city wants to get in front of the matter, knowing the Broward Inspector General’s Office has been investigating CRAs around the county for some time.

Herbst said he expects the audit to determine whether CRA spending was “in compliance with state law and CRA bylaws,” and whether the CRAs were properly managed and contracts adhered to the CRAs’ limitations.

“We want to make sure money was spent in accordance with governing legislation,” Herbst said. The audit will cover the past three years – a reasonable time period, the auditor added.

Fort Lauderdale Commissioner Robert McKinzie

Herbst said the troubled Sixth Street Plaza project is a key factor in the ongoing audit. Last May, the city auditor’s office criticized the CRA for poor oversight of a taxpayer-supported office and retail plaza that was to be the centerpiece of the city’s ambitious plans to revitalize the Sistrunk Boulevard corridor.

But the 23,000-square-foot building at 900 NW Sixth St. filed for bankruptcy, jeopardizing the repayment of $1 million in taxpayer loans.

Following that finding, Vice Mayor Robert McKinzie’s staff asked Herbst in a memo to conduct “a complete audit of the day to day operations of the CRA.” Herbst said Mayor Jack Seiler and his fellow commissioners backed the call for the audit in a consensus vote during a city commission conference meeting in January.

‘Inconsistent leadership’

Herbst said the city’s CRAs have had problems because of frequent management shuffling. “There was inconsistent leadership due to transfers,” he said.

A report by his office noted that the Northwest/Progresso/Flagler Heights CRA, in a less-affluent area, was charged $1.7 million for city services over the past five years, while the Central Beach CRA, in a wealthier area, was charged $909,000 during that same period.

The finding upset City Commissioner Dean Trantalis, who said an “excessive amount of money is charged for administration, denying the neighborhood that is suffering blight and neglect and so much money being used for staff.”

Fort Lauderdale Commissioner Dean Trantalis

Trantalis said he has asked City Manager Lee Feldman about correcting CRA allocation issues, but “he hasn’t been responding. We need to change the practice. We discovered that the city manager, to shore up the budget, has been attributing staff time to the CRA.”

Feldman did not respond to requests for comment before deadline after promising to make himself available for an interview.

At the city commission meeting in January, others expressed their concern about the auditor’s findings.

Minutes of the meetings say McKinzie “questioned why such a large portion of funds was allocated [to] the [Northwest/Progresso/Flagler Heights] CRA for administration and resources when the CRA did not have a director.”

Commissioner Bruce Roberts suggested the matter be referred to the State Attorney’s Office or some other investigative agency for a criminal probe.

“Many feel CRA funds have been drained for administrative services, and there is a lopsided disparity,” Trantalis said at the January meeting. The mayor and the city’s four commissioners also serve as directors of the CRAs.

Problems found

Herbst’s audit report mainly delved into the current fiscal year salary allocations of the two CRA offices, Northwest/Progresso/Flagler Heights and Central Beach. But it found problems.

“The method used to allocate personnel costs may lead to excessive General Fund expenses being allocated to the CRA, a violation of Florida Statute 163.370(3)(c),” the report stated. The state provision prohibits the tax-increment funds that CRAs receive from covering general government operating expenses unrelated to planning and carrying out a CRA plan.

The report goes on, “We determined that the Department of Sustainable Development (DSD) and the Budget Office were not able to provide adequate support for the percentages used for personnel cost allocations to/from the CRA fund and the sub-funds. Additionally, they are allocating charges to the CRA for personnel positions which are vacant for either a portion of the fiscal year or the entire fiscal year.

“The budgeted allocations are then charged to the CRA throughout the year without reconciling those estimates to actual costs incurred, resulting in an excess of allocation over actual cost,” according to the report.

The faulty allocations can negatively impact the CRAs’ ability to achieve their goals, the report aid.

The city charged the CRAs for hours city employees spent working on agency matters.

In one instance, the report said the Northwest/Progresso/Flagler Heights CRA was “overcharged” $30,000, which should have been charged to the Central Beach CRA. That happened after an employee was promoted from assistant to the city manager to the position of economic and business development manager in charge of the Central Beach CRA. For three months, he was paid from funds allocated to a vacant position in the Northwest/Progresso/Flagler Heights CRA, the report said.

A correction was later made, but “the prior overcharging was not corrected timely” and ate into how much funding was available to meet the CRA’s goals.

Since the report, the city has begun making changes.

Trantalis said in an interview that city commissioners have removed the CRAs from reporting to the Department of Sustainable Development and made them separate entities with their own managers to oversee day-to-day operations. State law requires CRAs to operate independently of other departments.

City Manager Feldman, however, will continue to function as executive director of the CRAs.

Other changes call for improved financial oversight from the city finance director and the city auditor, identifying a separate CRA funding and accounting structure, and allocating additional funds for the two CRAs to implement changes during the current fiscal year.

A rendering of Fort Lauderdale’s proposed WAVE streetcar. Will tax dollars intended to eliminate slums be used to pay for it?

Fort Lauderdale’s recent approval of a no-bid contract to update the plan for the troubled Northwest-Progresso-Flagler Heights Community Redevelopment Agency has raised concerns about a lack of public input amid a rush to add projects not in the current plan at the expense of community needs.

Scott Strawbridge, who serves on the CRA’s 14-member advisory board, has called for outside review of the agency after he and his colleagues were informed that City Manager Lee Feldman signed a $24,500 contract with a private firm in August to amend the current CRA plan, last updated in 2001.

Pompano Beach-based Redevelopment Management Associates LLC has already begun the first phase of the work. Under city code, the city manager has authority to enter into contracts up to $25,000, without seeking approval from the CRA board.

“The city is trying to push through a short term process that should take a longer review,” said Strawbridge, adding there needs to be more data to support any proposed changes. “I think it would be healthy for the public to understand what has been spent…There should be accountability.”

Except for one informational hearing on Sept. 23 about the Redevelopment Management firm’s study, there has been little public notice and input, Strawbridge added.

Frank Schnidman, a Florida Atlantic University professor recognized as an expert on legal issues regarding CRAs law, said state statute makes “clear if projects are not in the plan then it’s inappropriate to use tax increment” CRA funds to pay for them.

By law, the mission of CRAs is to clean up slum and blight. Schnidman said the Northeast Progresso-Flagler Heights CRA apparently is considering funding transportation projects not currently in the plan. But even if they met the legal requirements for CRA funding “they would not alleviate slum and blight…They would be using poor people’s money to subsidize transit for people living in more affluent areas.”

“This would be another manipulation of tax money,” Schnidman said, adding the funds would be better used for “affordable housing, where there is a crisis. Poor people would be left out in favor of politically favored projects, like the Wave,” a proposed streetcar system primarily servicing the downtown area.

Fort Lauderdale City Manager Lee Feldman

City Manager Feldman, who also serves as executive director of the CRA, and Jeremy Earle, deputy director, of the city’s Sustainable Development Office, did not respond to requests for comment.

However, city spokesman Matt Little noted in an e-mail response that the CRA budget includes funding for the WAVE, “as approved by the CRA Board.” He also said the budget may include “a line item” subsidy for the existing Sun Trolley system, if the project is contained in the Plan, but did not clarify if that was the case or not.

The CRA’s plan is being updated because it hasn’t been amended for 11 years, and changes could allow for the enhancement of transportation, provide support for community events and give the CRA Board flexibility to consider other proposals that may be presented, the spokesman said.

The concerns follow a problematic city auditor’s report in May that castigated the Northwest Progresso-Flagler Heights CRA for its poor oversight of a taxpayer-financed office and retail complex, Sixth Street Plaza, which filed for bankruptcy last spring.

“The project lacked fundamental project discipline, from risk assessment and establishing proper governance to detailed accounting of funds disbursement,” City Auditor John Herbst wrote in a cover memo to the city commission, which also sits as the CRA’s board of directors.

The city commission requested the report after FloridaBulldog.org reported in February that taxpayer loans were in jeopardy due to the forced sale of the plaza.

Strawbridge, an official with the Fort Lauderdale Housing Authority, stopped short of naming the agency that should look into NPF’s spending practices. But the Broward Inspector General’s Office has kept close tabs of municipal CRAs in recent years.

Last year, for example, the Inspector General found the Margate CRA deliberately mishandled $2.7 million in funds by rolling the money over for several years without specific purposes. In 2013, it determined that the Hallandale Beach CRA had $2.2 million in questionable expenditures.

Two years ago, the Florida Auditor General cited the Hollywood Beach CRA for failing to report $36.2 million in unspent year-end funds from 2009-2010 and $34.2 million from 2010-2011. The city is now considering options that would redirect funds intended for the CRA to the city.

The proposed route of Fort Lauderdale’s WAVE streetcar

Strawbridge said the Northwest Progresso-Flagler Heights CRA is seeking to revise the existing plan to add projects for funding consideration that are not included in its existing plan, even as the new fiscal year began Oct. 1.

According to city documents, CRA officials expect Redevelopment Management Associates to present an outline of proposed changes at the end of November, and to city commissioners for approval in December. The company, formed in 2009 and run by redevelopment consultants Kim Briesemeister and Chris Brown, pitches itself as a way to help cities “reinvent” themselves to attract businesses, jobs and revenue.

The CRA budget for the new fiscal year of 2015-2016 will likely include funds for transportation projects not in the existing plan, Strawbridge said.

He cited two memos from Feldman to commissioners. One outlined an extension of the proposed $50 million WAVE streetcar to a portion of the Northwest Progresso-Flagler Heights area at a cost of $7.5 million. The CRA would make an anticipated annual payment of $870,000, for up to 11 years.

The other memo called for the CRA to pay $197,000 to offset operational expenses for the existing Sun Trolley system in the CRA area.

In the past, the CRA has also funded neighborhood street parties, giving one group up to $142,000, Strawbridge said. He questioned whether that was a proper expenditure under a previous opinion by the Florida Attorney General’s Office, which opined that CRA funds should be used for “bricks and mortar” projects.

A new Fort Lauderdale auditor’s report castigates the city’s Community Redevelopment Agency (CRA) for its poor oversight of a taxpayer-financed office and retail plaza that was to be the centerpiece of the city’s ambitious plans to revitalize the Sistrunk Boulevard corridor.

Sixth Street Plaza, a 23,000-square foot building at 900 NW Sixth Street, filed for bankruptcy this month, further jeopardizing the repayment of almost $1 million in taxpayer loans.

“The project lacked fundamental project management discipline, from risk assessment and establishing proper governance to detailed accounting of funds disbursement,” City Auditor John Herbst wrote in a cover memo to the city commission. “Accordingly, there is no way to be certain that all of the funds put into this project were spent appropriately.”

The city commission, sitting as the CRA board, requested the report after FloridaBulldog.org reported in February that taxpayer loans were in jeopardy due to the forced sale of the plaza.

FLAWED FROM THE START

The report found the Sixth Street Plaza project flawed from the start by a shoddy business plan. Still, it was pushed by cheerleading CRA staff.

“The CRA staff failed to maintain their objectivity,” the report adds. “As observed in emails…in 2008 and 2009, they appeared to view their role as project advocates rather than as stewards of the CRA’s funds.”

Former CRA director Al Battle, now deputy director of Fort Lauderdale’s Department of Sustainable Development

Alfred Battle, who headed the CRA for the Northwest-Progresso-Flagler Heights area during part of Sixth Street Plaza’s construction, did not respond to requests for comment. Battle is currently a deputy director at the city’s Department of Sustainable Development.

The report, released last week, to be discussed during Tuesday’s city commission conference meeting.

The Fort Lauderdale CRA is one of nine municipal CRAs in Broward County that direct tax dollars to areas to clean up slum and blight.

In November, Broward County Circuit Court Judge Carlos Rodriguez ordered the public sale of Sixth Street Plaza at the request of Regent Bank, which from 2005 to 2007 had loaned the developer nearly $2.3 million.

Freeman is well known to city hall and Broward political circles. She is vice chair of the Fort Lauderdale Housing Authority and has served on the CRA’s Northwest/Progresso/Flagler Heights Redevelopment Board, the city Marine Advisory Board, the city Planning and Zoning Board and the city Planned Unit Development Zoning District Advisory Committee.

Freeman’s business telephone has been disconnected. She did not respond to a request to comment made through her attorney, Susan D. Lasky.

LOANS AND GRANTS

The Fort Lauderdale CRA gave Sixth Street Plaza another $1.2 million in loans and grants between 2005 and 2009, according to the report. The South Florida Regional Planning Council, a quasi-governmental agency, also loaned Sixth Street Plaza $300,000.

Regent Bank hoped to recoup some of its loan in the public sale of the plaza. The sale, however, was put on hold when Freeman’s Sixth Street Plaza Inc. filed for bankruptcy in federal court. Sixth Street Plaza filed for Chapter 11 bankruptcy protection on May 4, the day before the plaza was to be sold at a public auction.

Freeman personally filed for Chapter 11 bankruptcy in 2013, claiming she “has experienced difficulties caused by the significant downturn in the real estate market.” That action is pending.

Regent Bank’s attorney Steve Moody said in an interview that the latest bankruptcy filing shifts the state court foreclosure case to federal court and stops the public sale.

Even if the public sale eventually occurs the odds remain long that the city will recoup the money it loaned to build Sixth Street Plaza. The taxpayer loans are “subordinate,” meaning that if the public auction does not raise enough money to pay off Regent, no monies will be left over to repay the taxpayers.

Zillow, an online real estate database, placed the value of Sixth Street Plaza this month at $743,512, down from a February estimate of $905,275.

The Sixth Street Plaza opened in 2010, but has never been successful in attracting more than a handful of long-term tenants despite rosy CRA estimates. A 2002 CRA staff analysis of the plaza’s vacancy rate “was unsupported” and lacked “market studies or comparative rents,” the auditor’s report states.

“…Even under aggressive assumptions regarding vacancy rates, and using an extremely low budget for construction, the development was projected to generate barely enough cash flow after operations to service its debt,” the report concludes.

One long-term plaza tenant is the CRA itself, which is paying $96,000 a year through 2016 for 6,000-feet of office space, rent the auditor’s report criticizes as an “above-market rate.” The CRA will pay “as much as $481,947” in excess rent” during the term of its lease, the report points out.

NO JUSTIFICATION

The report says “the CRA director at the time” said that “paying higher (rental) rates would jumpstart the office market in the area, but there was no rationale provided to justify that statement.”

The report goes on describe the plaza’s business plan as “meager, lacking a detailed market demand analysis, marketing plan, construction budget and cash flow projections.” Auditors found no “documentation of the developer’s capacity to undertake the work.”

That disorganization was reflected in the project’s construction budget that jumped from $735,000 in 2001 to $1.6 million in 2002. “There is no explanation of what increased and why,” the report states.

Sixth Street Plaza failed even though Freeman raised a total of $3.75 million through loans and grants. “The project should have had more than adequate capital,” the report adds.

According to Sixth Street Plaza’s bankruptcy petition, the company also owes more than $52,000 to subcontractors and other businesses.

One reason the auditor had difficulty tracing expenditures is because the original agreement between the CRA and developer did not allow for the CRA to audit Sixth Street Plaza’s records.

“Accordingly, the (auditor’s office) was unable to review key elements that may have yielded a better understanding of the cost increases and flow of funds,” Herbst said in his cover memo.

The report also blasts the CRA for failing to monitor adequately the distribution of taxpayer monies to the project. As a result, “the city is unable to determine how $916,344…of CRA funds were spent,” the report says.

Herbst recommended the “CRA needs to integrate a culture of fiscal discipline and accountability into its core mission of eliminating slum and blight.” To accomplish that, the report suggests the city commission separate project management and advocacy within the CRA as “these functions have goals which may be at odds with each other…”